Liable if I give 403b advice to colleagues?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
A440
Posts: 456
Joined: Mon Sep 02, 2013 7:46 am
Location: NJ

Liable if I give 403b advice to colleagues?

Post by A440 » Sat Oct 17, 2015 7:11 pm

I was curious to know if I give 403b advice to my teacher colleagues if I am in any way liable. I am licensed to be a teacher, not a financial rep.

My advice is fairly generic:
-start early and raise your contributions every year.
-consider low-cost 403b(7) accounts over annuities, because COSTS MATTER!
-decide whether the Roth option is better than a Traditional
-If you don't know anything about investing, pick up a copy of Bogle's "Little Book of Common Sense Investing" at the library, and you may possibly know more than many of the RIA's that are selling products during our lunches.

Sometimes I get admonished by 403b RIA's that sell their products to our teachers, because I am not a registered adviser and don't act as a fiduciary for the teachers. Every now and again, I get warned by a rep that I might be liable if I give advice (solicited or unsolicited) to my colleagues. Is there any truth to this admonition?
I don't know what the future holds, but I know who holds my future.

User avatar
Phineas J. Whoopee
Posts: 8798
Joined: Sun Dec 18, 2011 6:18 pm

Re: Liable if I give 403b advice to colleagues?

Post by Phineas J. Whoopee » Sat Oct 17, 2015 7:26 pm

Maybe.

If you are losing a lawsuit brought by a disgruntled colleague who made less profit than they thought they should by following your advice, do you expect the judge or jury to be swayed by "some dude on the public Internet told me I'm not liable?"

I make a point of telling anybody who asks that I do not give financial advice, but that I'm willing to discuss general principles and to reveal, on a limited basis, my own choices and why I made them.

Come to think of it, I'm probably skating on the edge of disaster myself. I think I'll stop.

PJW

User avatar
oncorhynchus
Posts: 141
Joined: Fri May 23, 2014 2:30 pm

Re: Liable if I give 403b advice to colleagues?

Post by oncorhynchus » Sat Oct 17, 2015 7:28 pm

Ask them about their liability in giving you unsolicited legal advice.

o
-- Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. --

User avatar
Phineas J. Whoopee
Posts: 8798
Joined: Sun Dec 18, 2011 6:18 pm

Re: Liable if I give 403b advice to colleagues?

Post by Phineas J. Whoopee » Sat Oct 17, 2015 7:33 pm

^ Poetic justice rarely prevails in court.
PJW

User avatar
prudent
Moderator
Posts: 6883
Joined: Fri May 20, 2011 2:50 pm

Re: Liable if I give 403b advice to colleagues?

Post by prudent » Sat Oct 17, 2015 7:33 pm

I love to talk to colleagues about investing but I am careful not to tell them what to do. I talk about what I know...
- costs matter, just add up what 1% more a year costs you over 30 years and see for yourself
- nobody is smarter than the market, so why would I pretend to know when to get in and get out? Most of the upside comes on a precious few days in a year
- studies have proven a blend of stocks and bonds works well and reduces risk.
- I'm lucky to have encountered the Bogleheads' books and recommend them

Then I talk about what I do that is consistent with that. And if they want to change what they're doing and want to talk about it, I'm glad to help. But it's always "this is what I do" and why.

neuro84
Posts: 66
Joined: Thu Jul 24, 2014 11:25 am

Re: Liable if I give 403b advice to colleagues?

Post by neuro84 » Sat Oct 17, 2015 7:51 pm

I'm not a lawyer, but if no money is exchanged, it seems there would be no fiduciary responsibility implied between you and your colleagues. And without such a relationship (without money changing hands), it seems to me that there'd be no grounds for a civil suit against you.

Now, if you charged them for this advice, I could see how that might be a problem.

User avatar
Phineas J. Whoopee
Posts: 8798
Joined: Sun Dec 18, 2011 6:18 pm

Re: Liable if I give 403b advice to colleagues?

Post by Phineas J. Whoopee » Sat Oct 17, 2015 7:55 pm

^ Common sense is not the basis of US tort law.
PJW

GoldenFinch
Posts: 1972
Joined: Mon Nov 10, 2014 11:34 pm

Re: Liable if I give 403b advice to colleagues?

Post by GoldenFinch » Sat Oct 17, 2015 8:21 pm

I don't know. But I wonder if this isn't just an "offering my opinion" issue. I never discuss financial issues with anyone outside of my family (except here), but people give me their opinion about a lot of things and I know it's up to me to listen or ignore. I can't see how you could be held liable for giving your opinion to a colleague. (Although you definitely risk someone telling you to take a hike.) I am interested to hear from some lawyers on this board.
Last edited by GoldenFinch on Sat Oct 17, 2015 8:29 pm, edited 1 time in total.

User avatar
VictoriaF
Posts: 18984
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: Liable if I give 403b advice to colleagues?

Post by VictoriaF » Sat Oct 17, 2015 8:22 pm

Phineas J. Whoopee wrote:^ Poetic justice rarely prevails in court.
PJW
^Very clever!

I think it's OK to describe what "I" do and why "I" do it. It's probably also OK to describe the pitfalls of investing with advisers, using loaded funds, chasing returns, frequent trading, not using 403b, etc. The problem is that if someone decides to sue you, they may misrepresent what you have said. For example, even if you said that "you" use 60/40 TSM/TBM, several months later they may claim in court that you recommended to "them" to use 60/40 TSM/TBM. It may not even be malicious; it may be due to a difference between what you actually said and what they thought you said.

Victoria
Last edited by VictoriaF on Sat Oct 17, 2015 8:25 pm, edited 1 time in total.
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

User avatar
LadyGeek
Site Admin
Posts: 57777
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Liable if I give 403b advice to colleagues?

Post by LadyGeek » Sun Oct 18, 2015 9:49 am

I removed some off-topic comments that may have resulted from a misinterpretation of intent. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
If there are any questions, please PM me directly.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
LadyGeek
Site Admin
Posts: 57777
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Liable if I give 403b advice to colleagues?

Post by LadyGeek » Sun Oct 18, 2015 9:50 am

This thread is now in the Personal Finance (Not Investing) forum (legal).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Liable if I give 403b advice to colleagues?

Post by in_reality » Sun Oct 18, 2015 10:48 am

A440 wrote:Sometimes I get admonished by 403b RIA's. Is there any truth to this admonition?
Steps to resolve this non-sense:

1) Ask them point blank in return what their compensation is. Establish the fact that they are indeed compensated.

2) Point out that the Investment Advisers Act of 1940 is a United States federal law that was created to regulate the actions of those giving investment advice for compensation as means to protect the public.

3) Note that the Act defines an “investment adviser” as anyone who, for compensation engages in the business of advising others about the value of securities or the advisability of investing in, purchasing, or selling securities.

4) Ask them if they really truly honestly believe this law means people who are discussing finances and not receiving any compensation are violating it by not being registered and trained in fiduciary duty.

5) Admit that if you were a part-time insurance agent, you would be in violation for suggesting to clients that they sell their stock to fund a purchase from you even though recommending an annuity is 100% OK under the Act. [advising clients to sell stock is not]

6) Acknowledge that if you get compensation in some way, say even a salary as a bank teller, then you can't suggest people to not use certain investments and use your bank's alternatives, such as a safe CD instead.

7) Ask them in what way they think you are receiving compensation.

8) Assure them there is no way in which you are receiving compensation and that they need not worry.

9) Inquire about adding additional lower cost funds and if the use of those would affect their compensation.

10) Thank them kindly for their concern and wish them a good day.

NOTE: I am not a lawyer, have not consulted a lawyer, and so you'll have to make up you own mind on this. http://www.forbes.com/sites/feeonlyplan ... nt-advice/

Mudpuppy
Posts: 5889
Joined: Sat Aug 27, 2011 2:26 am
Location: Sunny California

Re: Liable if I give 403b advice to colleagues?

Post by Mudpuppy » Sun Oct 18, 2015 4:24 pm

A440 wrote:Sometimes I get admonished by 403b RIA's that sell their products to our teachers, because I am not a registered adviser and don't act as a fiduciary for the teachers. Every now and again, I get warned by a rep that I might be liable if I give advice (solicited or unsolicited) to my colleagues. Is there any truth to this admonition?
Here's my personal rule of thumb: keep it to cocktail party conversations. What I mean by this is to keep it generic and never go into specifics. I would never tell a co-worker or friend exactly what to do with their money, or even exactly what I'm doing with my money (so things like "I'm currently in an x/y asset allocation" or "I'm currently invested in xyz" would never be said). But I'm okay with general statements like "I prefer low-cost investing over that expensive stuff the reps try to sell us" or "I don't like to gamble with individual stocks" or "I found xyz book/website to be helpful".

I've also previously had colleagues who didn't fully read the benefits booklet in the hiring packet, so they didn't realize we have a 457b option. For those colleagues, I just mention that a 457b account has a separate contribution limit than 401k/403b accounts and I direct them to the benefits portal to find out more information. That's telling them nothing more than they would have found out had they read the booklet, so nothing liable there either.

Probably the most liable thing I've ever said to a colleague is that I prefer the California Savings Plus Plans over our other voluntary retirement account providers, as CA SPP has much lower cost options. I'm sure the reps from the other providers wouldn't like that much, but I never give any specific advice about what to invest in, just that I prefer CA SPP as a provider due to its low cost options.

small_index
Posts: 631
Joined: Sun Aug 16, 2015 2:47 am

Re: Liable if I give 403b advice to colleagues?

Post by small_index » Sun Oct 18, 2015 6:33 pm

A440 wrote:Sometimes I get admonished by 403b RIA's that sell their products to our teachers, because I am not a registered adviser and don't act as a fiduciary for the teachers.
I see their intent as scaring you. Two key questions for the reps:
- are they serving your teachers in a fiduciary capacity?
- who besides clients(your teachers) gives them money?
Unless both answers are "yes", "nobody" you can highlight their own conflict of interest.

tibbitts
Posts: 9370
Joined: Tue Feb 27, 2007 6:50 pm

Re: Liable if I give 403b advice to colleagues?

Post by tibbitts » Sun Oct 18, 2015 7:16 pm

A440 wrote:I was curious to know if I give 403b advice to my teacher colleagues if I am in any way liable. I am licensed to be a teacher, not a financial rep.

My advice is fairly generic:
-start early and raise your contributions every year.
-consider low-cost 403b(7) accounts over annuities, because COSTS MATTER!
-decide whether the Roth option is better than a Traditional
-If you don't know anything about investing, pick up a copy of Bogle's "Little Book of Common Sense Investing" at the library, and you may possibly know more than many of the RIA's that are selling products during our lunches.

Sometimes I get admonished by 403b RIA's that sell their products to our teachers, because I am not a registered adviser and don't act as a fiduciary for the teachers. Every now and again, I get warned by a rep that I might be liable if I give advice (solicited or unsolicited) to my colleagues. Is there any truth to this admonition?
It's amazing that you can even get an RIA to bother showing up at your workplace.

I'm definitely not an expert, but I don't see how this is different than giving free advice about how to fix plumbing or do electrical work or treat a common cold, without being a licensed plumber or electrician or physician. I suppose in theory any of that exposes you to liability, but in some way almost any word out of your mouth probably does. Probably making a suggestion about education would be even worse, because you are a licensed professional and supposed expert in that area.

User avatar
just frank
Posts: 1455
Joined: Sun Nov 02, 2014 4:13 pm
Location: Philly Metro

Re: Liable if I give 403b advice to colleagues?

Post by just frank » Sun Oct 18, 2015 7:21 pm

I"m sorry, but this whole thread seems ridiculous to me. I could see if someone was **paying** me for advice or to manage their money, I would need some sort of accreditation, but short of that I find it hard to imagine I would have any liability.

Otherwise, isn't the entire Boglehead site acting outside the law? :shock:

User avatar
Artsdoctor
Posts: 4112
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: Liable if I give 403b advice to colleagues?

Post by Artsdoctor » Sun Oct 18, 2015 7:32 pm

"Sometimes I get admonished by 403b RIA's that sell their products to our teachers, because I am not a registered adviser and don't act as a fiduciary for the teachers. Every now and again, I get warned by a rep that I might be liable if I give advice (solicited or unsolicited) to my colleagues."

You're being admonished because you're telling colleagues that costs matter and that they should keep costs low. You're doing this for free.

In other words, you're taking food out of the salesman's mouth. You pose a threat to his livelihood so of course he's going to come at you.

If you have the energy and you're on good terms with HR, I would tell the HR supervisor that you're being harrassed.

User avatar
David Jay
Posts: 7286
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Liable if I give 403b advice to colleagues?

Post by David Jay » Mon Oct 19, 2015 2:38 am

Artsdoctor wrote:If you have the energy and you're on good terms with HR, I would tell the HR supervisor that you're being harrassed.
cute!
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

2comma
Posts: 1241
Joined: Thu Jul 15, 2010 11:37 pm

Re: Liable if I give 403b advice to colleagues?

Post by 2comma » Mon Oct 19, 2015 3:33 am

just frank wrote:I"m sorry, but this whole thread seems ridiculous to me. I could see if someone was **paying** me for advice or to manage their money, I would need some sort of accreditation, but short of that I find it hard to imagine I would have any liability.

Otherwise, isn't the entire Boglehead site acting outside the law? :shock:
Me too! My primary purpose in life at this point is not to become an angry old man, (slow down, get off my lawn!) but this is getting the blood pressure up...

I am active in the science/skeptical community and we go after frauds from time to time. In a few cases well to do victims try to suppress us with nuisance suites. We band together and fund those that are liable. If any RIA had the means to bring such a suit against you I'd support you with dollars, I think others would too. I'd doubt they have a leg to stand on in court but I'm wondering why they even know that you are talking to your co-workers about investment options. Are you challenging them when they are giving their presentations? Other than that I can't imagine how they'd know, or care, what you said to your co-workers.

Like others have said can we not give recommendations about where to get our brakes fixed or what high heals to buy or what over the counter antihistamine works best or what fishing spot is best for fear if something goes wrong the person we gave advice to would come after us with a lawsuit? I'm no lawyer, haven't stayed in a Holiday Inn Express lately but if you ask me for investing advice you get what I got. Unabashed, without fear, to the best of my ability. It's up to you to decide if you think I'm full of it, I'm not inclined to qualify investment advice any more than the average Boglehead would on this forum. I guess I could end up with a huge judgement against me or even be inmate #14083726 somewhere - all I have to say to that is na-na-na-na-poo-poo - bring it on!
If I am stupid I will pay.

TIAX
Posts: 1270
Joined: Sat Jan 11, 2014 12:19 pm

Re: Liable if I give 403b advice to colleagues?

Post by TIAX » Mon Oct 19, 2015 7:30 am

in_reality wrote:
A440 wrote:Sometimes I get admonished by 403b RIA's. Is there any truth to this admonition?
Steps to resolve this non-sense:

. . .

2) Point out that the Investment Advisers Act of 1940 is a United States federal law that was created to regulate the actions of those giving investment advice for compensation as means to protect the public.
I tend to agree that this is probably nonsense but note that there may be relevant state laws. For example, California Corporations Code Section 25009 defines "investment adviser" and the law imposes a fiduciary duty on investment advisers. Here's a recent California case relating to whether a person who is uncompensated can be an investment adviser.

User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Liable if I give 403b advice to colleagues?

Post by in_reality » Mon Oct 19, 2015 8:23 am

TIAX wrote:25009 defines "investment adviser" and the law imposes a fiduciary duty on investment advisers.

"Investment adviser" means any person who, for compensation, engages in the business of advising others
and
...does not include ... a teacher whose performance of these services
is solely incidental to the practice of his or her profession
Seems compensation is the criteria in California as well.
TIAX wrote:Here's a recent California case relating to whether a person who is uncompensated can be an investment adviser.
,

Um if by uncompensated you mean the hedge fund employee who told the family's trustee that the hedge fund was safe to invest it ... well the documents showed the family trust was paying a fee to the hedge fund for it's services. Oh wait that was the Hedge Fund CEO and he was ruled to have fiduciary duty.

So no the family and the trustee did not pay the Hedge Fund, but the CEO was not uncompensated. It's the same as an insurance agent telling you to sell stocks and buy an annuity. You are not paying them for advice, but they get money from the insurance policy, so they can't give you advice to sell your stocks.

Yes, State Law. Good to bring it up but I don't see the cases you cite and changing anything that I wrote.

User avatar
Marmot
Posts: 321
Joined: Sun Oct 10, 2010 1:44 pm
Location: Phoenix, AZ

Re: Liable if I give 403b advice to colleagues?

Post by Marmot » Mon Oct 19, 2015 8:41 am

prudent wrote:I love to talk to colleagues about investing but I am careful not to tell them what to do. I talk about what I know...
- costs matter, just add up what 1% more a year costs you over 30 years and see for yourself
- nobody is smarter than the market, so why would I pretend to know when to get in and get out? Most of the upside comes on a precious few days in a year
- studies have proven a blend of stocks and bonds works well and reduces risk.
- I'm lucky to have encountered the Bogleheads' books and recommend them

Then I talk about what I do that is consistent with that. And if they want to change what they're doing and want to talk about it, I'm glad to help. But it's always "this is what I do" and why.
Plus 1. I talked to a lot of co-workers, mainly trying to get them to understand how costs affected their portfolios and the importance of diversification. I left my company last year (ER'ed: :D) , but I email friends and ask them how their bonds are doing after market hiccups. The easy thing really was to explain the available target dated funds and their purpose since they are basically diversification funds. I did refer a lot of people to this site as a source of information and education. I am not as paranoid as some folks here are, there is a reasonableness standard I would think.

Rupert
Posts: 4122
Joined: Fri Aug 17, 2012 12:01 pm

Re: Liable if I give 403b advice to colleagues?

Post by Rupert » Mon Oct 19, 2015 9:05 am

A440 wrote:I was curious to know if I give 403b advice to my teacher colleagues if I am in any way liable. I am licensed to be a teacher, not a financial rep.

My advice is fairly generic:
-start early and raise your contributions every year.
-consider low-cost 403b(7) accounts over annuities, because COSTS MATTER!
-decide whether the Roth option is better than a Traditional
-If you don't know anything about investing, pick up a copy of Bogle's "Little Book of Common Sense Investing" at the library, and you may possibly know more than many of the RIA's that are selling products during our lunches.

Sometimes I get admonished by 403b RIA's that sell their products to our teachers, because I am not a registered adviser and don't act as a fiduciary for the teachers. Every now and again, I get warned by a rep that I might be liable if I give advice (solicited or unsolicited) to my colleagues. Is there any truth to this admonition?
The truth is that anybody can be sued for anything. That doesn't mean you'll be successfully sued, but even unsuccessful lawsuits can be expensive to defend and tremendously stressful. For this reason alone, it's wise to be very thoughtful about what sort of advice you give and to whom. You should also know that ERISA fiduciary law is very broad and can sweep in anyone acting on an employer's behalf. So if your employer knows that you are routinely giving advice/education to other employees about the plan and your actions can be construed as employer-sanctioned, well, that would worry me a little bit. Your employer probably has ERISA fiduciary liability insurance to protect it's decision makers. There's a reason why such insurance exists. Personally, when one of my co-workers asks me something about the retirement plan, I always say, "Listen, I'm not a financial advisor or investment expert, but here's what I do for myself and why I do it . . ." I never tell them what they should do with their own money because I do feel that may be crossing a line. Just FYI: I am actually a decision maker for my employer's plan and signed an acknowledgement of potential liability when I agreed to become one. So I've put a lot of thought into the issue and did quite a bit of legal research on ERISA fiduciary liability before signing. I also made sure I was covered by my employer's liability insurance.
Last edited by Rupert on Mon Oct 19, 2015 10:12 am, edited 1 time in total.

anonenigma
Posts: 736
Joined: Thu Apr 21, 2011 11:58 pm

Re: Liable if I give 403b advice to colleagues?

Post by anonenigma » Mon Oct 19, 2015 9:11 am

If you are in California, they are likely not RIAs. They are probably insurance salespeople who do not have fiduciary responsibility.

Topic Author
A440
Posts: 456
Joined: Mon Sep 02, 2013 7:46 am
Location: NJ

Re: Liable if I give 403b advice to colleagues?

Post by A440 » Mon Oct 19, 2015 11:10 am

Thank you for all the replies.

I do make a point before offering any advice to point out that:
1- I am not a financial professional, and do not have a responsibility to recommend any product that fits a colleague's best interest.
2- If someone offers compensation, I respectfully decline and steer them towards one of our vendors who does not work for an insurance company, most often ones that have CFP credentials.
3- I also let them know how I feel about annuities and my preference for low-cost index investing.

The more I learn about investing, the more need I see for sites like The Bogleheads and Dan Otter's 403b wise site, among others. Hopefully, financial education and fiscal literacy will become more commonplace in our schools curriculum. It is surely needed.
I don't know what the future holds, but I know who holds my future.

User avatar
Dutch
Posts: 1277
Joined: Thu Jun 27, 2013 2:12 pm

Re: Liable if I give 403b advice to colleagues?

Post by Dutch » Mon Oct 19, 2015 11:23 am

A440 wrote:Sometimes I get admonished by 403b RIA's that sell their products to our teachers, because I am not a registered adviser and don't act as a fiduciary for the teachers.
Ask them if they act as a fiduciary

User avatar
goingup
Posts: 3676
Joined: Tue Jan 26, 2010 1:02 pm

Re: Liable if I give 403b advice to colleagues?

Post by goingup » Mon Oct 19, 2015 12:35 pm

I don't see how it could be an issue as long as you preface advice with the first-person disclaimer: In my opinion...I have found that...What I have observed...What I feel is important...What I have done...etc.

Through the years I've read on this forum that many Bogleheads have become the "go-to person" in their organizations for 401K advice. You're the first I have ever heard of that was threatened by an RIA! Privately, I'd wear that distinction as a badge of honor. You might now be more careful how you phrase your input and make sure your colleagues know you're just a guy/gal with a keen interest in helping, and nothing more.

Post Reply